September 30, 2024
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Have you been dreaming about a career change? You are not alone. With nine out of ten workers reporting that they are not working in their dream job, it isn’t surprising that most people will decide to transition to a new career transition at some point. Unlike our parents or grandparents, who often stayed with one career for their entire working life, today, on average, workers will hold at least twelve different jobs in their lifetime.
Maybe you are looking for a career change to improve your work-life balance, increase your income, or pursue a new passion. Whatever the reason, take time to get your financial ducks in a row before you leap. A career change can be costly with increased expenses and decreased or lapsed income. Follow these steps to prepare yourself and avoid jeopardizing your long-term financial wellbeing.
Step 1: Review Your Current Financial Situation
Start by getting a grasp of your current financial situation. Look at your fixed expenses and discretionary spending habits to understand how much money you need each month and where you can cut costs. What is your current household income, and how will it change during and after this transition? Do you have any savings to use during this transition period?
Step 2: Understand the Costs and Consequences
Calculate all of the costs to gain a clear picture of your financial needs during your career transition. These will consist of the added expenses and any temporary loss of income. Associated costs may include pursuing a degree, continuing education classes, relocation expenses, new clothing, equipment, tools, or software to fulfill job requirements. If the switch means going back to school, you may need to leave your job or lessen your hours and need to prepare for a decrease in your income.
Additionally, figure in the costs of loosing benefits like health care insurance when you leave your current job. Check on perks you have received, such as sign-on bonuses, tuition reimbursement, or relocation expenses. You may need to pay some of them back if you haven’t met requirements such as the length of employment. On the other hand, see if you have an income-based repayment plan and can temporarily save money on student loan repayments
Step 3: Calculate your Needs
Now, it is time to review the whole picture to understand the financial impact. Let’s say your additional expenses will be $500 a month, your income will drop by $3,000 a month and you expect it will take two years to get the extra education you need and secure a job in your new field. When you add that all up ($3,500 a month x 24 months), you would ideally save $84,000 to cover that transitional time period. Once you have a good idea of the total amount, you can start realistically planning before you make a potentially financially damaging leap.
Step 4: Look for Funding or Cost-Saving Opportunities
Let’s explore some options if you currently don’t have enough savings to cover the expected. You could wait a year or two to make the change while building a reserve. Find out if your employer offers tuition reimbursement or continuing education benefits to save on education costs.
Look into alternatives to full-time school, such as an online or part-time program that allows you to work full or part-time and has less financial impact. Avoid dipping into your retirement savings or your home’s equity, as this could jeopardize your long-term financial health. Instead, consider a student loan or scholarships and grants specifically for adult learners.
If you are looking to start your own business, research funding opportunities, such as from investors or small business loans, that can cover your costs as you build it.
Career moves may also mean temporary or long-term adjustments to your lifestyle. Switching from a high-paying career to one with more flexibility and work-life balance might require sacrifices in spending, such as fewer vacations, less shopping and eating out, downsizing your home, or moving to a less expensive area. 
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Step 5: Use and Transition Over Your Financial Benefits
Before leaving your current job, review your owed vacation time and payout policies. You may get paid for the remaining days off at the end of your employment. Before losing medical or dental benefits, schedule appointments and refill prescriptions. Check your flexible spending or health savings accounts for balances and use any remaining funds.
For retirement accounts, you typically can keep your current plan, roll the 401(k) into an IRA, or transfer it to your new employee’s plan. Find out what happens to your plan if you leave it with your old company since some will cash out smaller balances meaning they likely won’t keep earning at the same rate. Look into vesting requirements if you have stock options with your employer.
Step 4: Seek the Advice of Professionals
Your financial advisor can assist with mapping out a plan for reaching your goals. Find out what resources and tools your bank has available.
Before launching into a career change, take the time to assess all the costs and benefits. Whether you want to increase your income or take a step back from the grind of your current work, a solid plan can ensure that your overall financial health stays intact during and after the transition.
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